GE, Shell, Clean Energy target US LNG fuel market

Shell, General Electric and a company co-founded by T. Boone Pickens are planning investments in natural gas powered shipping as record US output spurs the merchant fleet to use a new fuel.

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By ISSAC ARNSDORF

HOUSTON (Bloomberg) -- Royal Dutch Shell,
General Electric and a company co-founded by T. Boone Pickens
are planning investments in natural gas powered shipping
as record United States output spurs the merchant fleet to use
a new fuel.

Clean Energy Fuels, which Pickens helped start, will begin
construction next year on the
countrys first fuel station for cargo ships running on
liquefied natural gas in Jacksonville, Florida. Shell said in
March its planning LNG plants for the Great Lakes and
Gulf Coast. GE, evaluating five locations, says United States
will need 50 to 100 small-scale plants for ships, trains,
mining and trucks by 2025, each costing $50 million to $150
million.

We truly believe the age of gas is here, said
Mike Hosford, GEs general manager for unconventional
resources, based in Houston. The industry needs bigger
players to step in and start helping to build out the
infrastructure.

While the maritime industry still relies on oil-based
products for almost all its fuel, tighter emissions rules and abundant natural
gas are convincing ship owners to switch. The global fleet of
42 LNG-powered ships will almost triple by next year and
increase 42-fold to almost 1,800 vessels by 2020, according to
DNV GL, the largest company certifying the merchant fleet for
safety.

Norwegian ferry

Natural gas output in the United States, the worlds
largest producer, rose to 2.198 Tcf in August, the highest
since at least 1973, according to the latest Energy Department
data. Marketed production will expand 1.1 % to 71.03 Bcfd in
2014, the department estimates.

The first LNG-fueled ship, a Norwegian ferry built in 2000,
is one of 42 in operation worldwide, out of about 60,000
merchant vessels, according to DNV GL.

Most are small ferries and vessels that shuttle supplies to
offshore oil platforms. Tankers hauling LNG in world trade have
long used it for fuel through a process known as boil-off.

Thirty-seven new LNG-fueled ships and two conversions are on
order, scheduled for delivery in the next three years. By 2020,
1,068 new vessels will be built and 600 to 700 will be
converted to run on the fuel, DNV GL says.

The biggest vessels ordered so far are two container ships
for delivery in 2015 and 2016 for TOTE Inc., which runs
services between the United States and Puerto Rico and Alaska.
The design for the LNG-powered vessels won the Next Generation
Ship Award in June at the industrys biggest conference in
Oslo.

Anthony Chiarello, TOTEs president and CEO, keeps the
mermaid-shaped trophy in his Princeton, New Jersey, office.

More customers

Within the next five to 10 years, LNG will become the
main fuel source for all marine transportation, said
Chiarello, who says he gets at least half a dozen calls a week
from other owners asking about the fuel. Its going
to catch on. When those ships are actually plying the seas and
people are then able to calculate the emissions impact and the possible
cost savings, they can do all that math and say, This is
really a good decision.

Some ship owners are waiting for more harbors to add
equipment, and gas providers want to see more vessels that can
be customers, according to MAN Diesel & Turbo SE, the
largest maker of ship engines. Depending on infrastructure,
prices and environmental regulations, there
could be as many as 2,000 LNG-powered vessels consuming 15 MMmt
by 2020, the Augsburg, the company estimates.

Dual-fuel engines

Matson Navigation ordered two container ships with dual-fuel
engines able to use LNG for its West-Coast-to-Hawaii service
for $418 million, scheduled for delivery in 2018 from Aker
Philadelphia Shipyard Inc. Crowley Holdings Inc., a
Jacksonville-based shipping company, ordered two LNG-powered
ships to carry containers and vehicles for delivery in 2017
from VT Halter Marine Inc., of Pascagoula, Mississippi.

SEACOR Holdings ordered two 610 ft tankers at the General
Dynamics NASSCO yard in San Diego in September that are
designed for eventual conversion to LNG. American Petroleum
Tankers Parent, majority-owned by Blackstone Group LP funds,
ordered four ships with the same design in May. They are
scheduled for 2015 and 2016.

At some point LNG is going to be a viable marine
fuel, said Rob Kurz, the CEO of American Petroleum
Tankers in Plymouth Meeting, Pennsylvania. The
infrastructure is coming, but nobody knows precisely when it
will be built out.

Jacksonville plant

While the United States already has about 60 small-scale
liquefaction plants producing about 4.47 MMgpd used as
transportation fuel and to generate electricity, none of them
are close enough to water for ships to use, according to
Newport Beach, California-based Clean Energy. GE and Ferus
Natural Gas Fuels, a closely-held Calgary-based supplier, are
partners on the Jacksonville plant through a consortium called
Eagle LNG Partners. The facility will supply trucks and ships
with as much as 300,000 gpd by 2016, according to Clean
Energy.

There are also plans for facilities to export from the United
States, including Cheniere Energys terminal at Sabine
Pass, Louisiana, which will be the first in the continental
United States when it opens in 2015. The plant will be able to
process 9 MMtpy, eventually rising to 27 million, according to
the company. The Energy Department approved three other projects so far. United States
export capacity will reach 72 MMt by 2020, according to Morgan
Stanley.

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